Analysts cut Apple targets on profit decline, soft outlook

Reuters Staff

3 Min Read

Customers visit the Apple store on 5th Avenue in New York, September 19, 2012.Eduardo Munoz

(Reuters) - Apple Inc's first quarterly profit decline in more than a decade and a soft outlook for the current quarter prompted at least 11 brokerages to slash their price targets on the iPhone maker's shares by up to $180 per share.

Apple shares traded up slightly in after-hours trade at $407.20 after Apple's results, in which it also announced the return of $100 billion in capital to shareholders.

Apple could be resetting investor expectations with its soft June quarter outlook, JP Morgan's Mark Moskowitz said. He slashed his target price on the shares to $545 from $725, reflecting the much lower revenue outlook.

Canaccord Genuity said it sees much weaker overall iPhone sales and a higher proportion of sales of lower-priced Phone 4 models.

"This guidance is consentient with our expectations for the iPhone to lose material high-end market share to Samsung and other OEMs ahead of a fall iPhone 5S refresh," the brokerage said, as it cut its target price on Apple shares to $560 from $600.

BMO Capital analyst Keith Bachman, who downgraded his rating on the shares to "market perform" from "outperform," said Apple's March quarter results highlighted concerns about Apple trading off revenue growth against margins.

Apple's gross margin was 37.5 percent in the second quarter, below market expectations of 38.5 percent.

Apple's growth has slowed as smartphones reach saturation in the developed world and it goes head-to-head with increasingly aggressive rivals in developing countries such as China and India, where customers prefer cheaper models.

"We believe the increased competitiveness of the smartphone market is creating challenges for Apple," Bachman said.

Facing stiff competition from Samsung Electronics Co Ltd and Google's Android phone system, Apple shares have almost halved since hitting a record high of $705.07 last September.

While the valuation on Apple shares does not appear stretched, there is still a lot of risk and uncertainty around earnings, Nomura analysts said.

Apple stock is now trading at roughly 13 times estimated 2013 earnings per share. By contrast, the average price-earnings ratio for the sector is about 16.5, according to Starmine

Apple also disappointed Wall Street by indicating that consumers would have to wait till the fall and 2014 for any new products.

"We had anticipated a late July to August launch of the iPhone 5S and midrange iPhone," Nomura analysts said in a note. The brokerage cut its target price to $420 from $490.

Apple relies heavily on new product launches to drive revenue growth. It refreshed its offerings in October, unveiling the 7.9-inch iPad mini and an updated full-size iPad.

Investors looking for sales and profit to start accelerating again will need to be patient, analysts at Credit Suisse said as they cut their target price on Apple shares by $75 to $600.